Background
Mitra Esmkhani and her sons Arash and Shervin Barati were each assessed for GST/HST on the sale of newly constructed residential properties in Toronto. The Crown’s position is that each appellant was a “builder” within the Excise Tax Act’s definition and that the properties were sold as part of an “adventure in the nature of trade”—that is, a business enterprise rather than personal transactions. The Crown alleges the family functioned together between 2004 and 2018 to acquire, demolish, rebuild, and sell residential properties, purchasing and selling eleven properties overall and renovating seven of them before sale.
The appellants countered that the properties were personal residences acquired and occupied as such, with subsequent sales resulting from changes in personal circumstances. They argued they were not “builders” and the transactions were not adventures in the nature of trade.
The appellants moved to strike various paragraphs from the Crown’s Reply and certain documents from disclosure, arguing the allegations relating to other family members and properties not directly assessed were irrelevant and prejudicial. The Crown countersued to consolidate all three appeals and sought leave to amend its replies (later withdrawn).
The Court’s Holding
Justice Jenna Clark dismissed both the appellants’ and Crown’s motions. On the merits, the court found the impugned assumptions were relevant to the core issue. The Crown’s theory of the case—that the family functioned together in a profit-motivated enterprise—directly depends on evidence of intent, frequency, and pattern across multiple transactions. Factors relevant to determining whether a transaction constitutes an “adventure in the nature of trade” include the nature of the property, frequency of similar transactions, work expended on the property, motive, and circumstances of sale. Allegations about third-party family members’ involvement were properly linked to the appellants’ conduct under the Crown’s pleaded theory that they “functioned together” as a unified business entity.
The court rejected the appellants’ reliance on the common-law prohibition against propensity evidence, distinguishing tax litigation from criminal cases. The assumptions were pled in neutral language describing factual matters considered during assessment and were not inflammatory or abusive. Information about related taxpayers and corporate entities could be disclosed under section 295 of the Excise Tax Act for enforcement purposes. The court also found the appellants’ motion was ill-timed under the “fresh step rule”: they had already raised these same arguments in an unsuccessful October 2025 discovery motion and could have brought the striking motion earlier. Bringing it after that adverse order amounted to a collateral attack designed to limit the scope of ongoing discovery.
On consolidation, the court declined the Crown’s request. Although the Crown’s theory benefited from a consolidated hearing, the appellants’ competing theory—that each should be assessed separately as individuals—did not, and both parties were entitled to advance their respective positions. The parties had cooperated to keep the three appeals on the same timeline without consolidation, and trial management was best left to the trial judge.
Key Takeaways
- Evidence of similar transactions by related persons can be admissible in tax disputes to establish whether transactions constitute an “adventure in the nature of trade,” even if some properties are not directly assessed.
- A party cannot use a striking motion as a collateral attack on an earlier unfavorable discovery order; procedural motions should be brought promptly or risk dismissal under the “fresh step rule.”
- Courts will not consolidate multiple tax appeals against appellants’ wishes merely because the Crown’s theory of the case would benefit from consolidation—each party is entitled to advance its own theory and procedural choices.
- Relevance in tax pleadings is ordinarily a question for the trial judge; striking pleadings on relevance grounds requires that it be “plain and obvious” the allegations can never be relevant to the issues at stake.
Why It Matters
This decision clarifies the admissibility of pattern evidence in tax disputes involving “adventures in the nature of trade.” While propensity evidence is heavily restricted in criminal law, tax courts apply a more flexible relevance standard. The Crown’s ability to plead and prove a family business scheme involving multiple transactions—even if only some properties are assessed—is essential to establishing the profit-motivated intent required to classify real estate transactions as business rather than personal. The ruling affirms that tax disputes often require trial judges to weigh evidence of interconnected activities across persons and entities to determine the true commercial character of transactions.
The procedural holding is equally significant. The “fresh step rule” enforces orderly litigation by preventing parties from raising issues at convenient moments; by challenging discovery orders indirectly through striking motions after losing frontal attacks, the appellants ran afoul of settled procedural principles. The refusal to consolidate despite the Crown’s theory emphasizes respect for appellants’ litigation strategy and deference to trial management, even where consolidation might be more efficient from a systemic perspective.